Pricing Systems Impact On Quality And Safety

Running head: QUALITY AND SAFETY IN HEALTHCARE PRICING

Pricing Systems Impact on Quality and Safety

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QUALITY AND SAFETY IN HEALTHCARE PRICING

Pricing Systems Impact on Quality and Safety

Over the last few decades, there has been an extensive debate on whether it is feasible

to incorporate quality and safety in the health care pricing systems. In the Australian context,

policymakers and health care providers have been keen to ensure that health care pricing

incentivizes the provision of quality services, with an equal regard to safety. To this end,

Australian administration implemented the activity based funding system which took effect

starting July 2014. Funding for Australia's public hospitals comes from the two levels of

government. Consequently, the dynamic nature if the healthcare system makes it difficult to

streamline a single pricing or funding system to the entire public health care system.

However, the following discussion will show that the characteristics of the current pricing

model in the Australia’s public health care system are evidence for the normative pricing

model.

The study by Egar et al. (2013) identified four healthcare pricing models including

payment for performance pricing,structural models of pricing quality,normative pricing

andbest-practice pricing. Of the four models, the normative pricing model is the one that is

used by the public hospitals in Australia. The idea underpinning this pricing approach is that

pricing can be used to influence the quality of health care. That is, the price levied on the

provision of a particular healthcare service should ideally incentivize quality and safety

(Eagar et al., 2013). True to the idea, the activity based funding system has inherent tendency

to incentivize quality by allowing for reduced number readmissions, providing residential

aged care services and making remote follow-ups for patients after they have been discharged.

The use of financial disincentives as an effective way to incorporate safety and quality

has also gained momentum in the Australia’s public health care system. One such structural

disincentive is the sharing of responsibilities between the Commonwealth government and the

state government (Eagar et al., 2013). While the Commonwealth government has an

QUALITY AND SAFETY IN HEALTHCARE PRICING

obligation to fund the public health care system, it remains as a system manager with much of

the responsibility regarding service charter being at the discretion of state government.

Consequently, administrative inefficiencies are eliminated further enhancing the quality of

healthcare in the public system.

Question 2

The activity based funding model that is applied in Australia’s public health care

system provides a mechanism in which hospital funding is proportionally shared between the

Commonwealth government and state government. In this model, hospitals will receive a

fixed price from the Commonwealth government, called the national efficient price (NEP), for

each episode of care (Baxter et al., 2015). The objective is to make hospitals more efficient

and incentivize pursuit of quality and safety.

For any selected segment of the Australian population, the NEP is poised to enhance

safety and improve on quality in the provision of health care services by incentivizing

hospitals to expand the provision of profitable services. Under the model, if a health care

service offered in a hospital costs less than the fixed price paid for the activity-based model,

then the hospital will derive profit from providing the service and will consequently expand

that service (Baxter et al., 2015). However, the model has inherent perverse incentives. It

ignores the fact that not all profitable health care services produce great health gains for the

population. To that extent, the national efficient price provides incentives for services that

generate significant profits and not safety and quality.

For hospitals with higher costs for health care services that the set fixed prices, they

are likely to explore ways to increase efficiency and lower operational costs. Possible ways of

enhancing efficiency include cutting unnecessary costs, changing staffing mix, reducing

admission durations and undertaking more day surgery which is cheaper (Baxter et al., 2015).

QUALITY AND SAFETY IN HEALTHCARE PRICING

While these measures are likely to enhance efficiency, they could become counterproductive

by compromising the quality of healthcare services.

From the preceding discussion, it is clear that to a greater extent, the national efficient

price incentivizes quality and safety in the provision of health care services. However, the

model has inherent perverse incentives that could counter the benefits. Therefore, it is

imperative to seal the loopholes that would make the advantages of the activity based funding

together with dynamic national pricing redundant.

QUALITY AND SAFETY IN HEALTHCARE PRICING

References

Eagar, K., Sansoni, J., Loggie, C., Elsworthy, A., McNamee, J., Cook, R., &Grootemaat, P.

(2013). A Literature Review on Integrating Quality and Safety into Hospital Pricing

Systems. Centre for Health Service Development, University of Wollongong.

Australian Commission on Safety and Quality in Health Care (2013). Supplementary Briefing

and Literature Update: Integrating safety and quality into hospital pricing systems,

(2016).

Baxter, P., Hewko, S., Pfaff, K., Cleghorn, L., Cunningham, B., Elston, D., & Cummings, G.

(2015). Leaders’ experiences and perceptions implementing activity-based funding

and pay-for-performance hospital funding models: A systematic review. Health

Policy, 119(8), 1096-1110. http://dx.doi.org/10.1016/j.healthpol.2015.05.003

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